The default price cap decreases by £75 but predicted to rise in April 2020

Ofgem has announced today that the default tariff price cap will fall by £75 from £1,254 to £1,179 per year and the new levels will apply from 1 October. The pre-payment meter cap has also been reduced, falling from £1,242 to £1,217 per year for the same period.

Lower wholesale costs between February and June fuelled by a combination of weak demand during the winter months and healthy storage levels pushing wholesale prices down was cited as the main reason for the reduction to the default tariff cap.

The regulator said that the falling cap would affect 11 million customers who are currently on a standard variable tariff (SVT).

Robert Buckley, the Head of Retail and Relationship Development for Cornwall Insight, said it came “as no surprise due to the significant reduction in the wholesale markets we have seen.” For example, winter 19 gas was trading in the market at 60p/th on 31 January, while the same contract at the end of July was trading 15% lower at 51p/th.

Despite today’s reduction, our price cap predictor forecasts the default tariff cap is expected to rise by at least £30 for the summer 2020 period, driven by higher network costs and policy costs. This forecasted increase to the April 2020 default tariff cap levels “will erase over a third of the decrease that will come into effect in October”, Robert explained.